Wednesday, November 10, 2010
Last year we were livid with ESPN analyst and NASCAR owner Rusty Wallace when he chose to take on the US Fidelis extended vehicle warranty company as a primary sponsor for one of his Nationwide Series teams.
The company was run by felons who were reported to be actively engaged in fraud through deceptive advertising, misleading direct mailings and illegal phone solicitation. Click here for the Today Show report on US Fidelis back in 2009.
Wallace and his son Steven made a personal appeal through a series of TV commercials for NASCAR fans who needed help with expired warranties on their vehicles to choose US Fidelis.
Thousands of fans responded to the Wallace family and bought the US Fidelis product. The average cost of a US Fidelis extended warranty was three thousand dollars.
Needless to say, the whole thing smelled bad from the start. One year later the company is closed, the extent of the scam has been exposed and Rusty Wallace Racing has moved on to other sponsors.
For those of you who may have fallen victim, here is the latest official information on US Fidelis:
The Washington Attorney General’s Office spearheaded a multistate settlement with the former owners of U.S. Fidelis that ensures the Atkinson brothers will never again sell auto service contracts or telemarket in 11 states. The agreement also severely restricts how the duo advertises any other product or service and requires them to turn over nearly all their assets.
The business practices of U.S. Fidelis, which operated as National Auto Warranty Services and Dealer Services until its bankruptcy last spring, have been widely reported. More than 400,000 consumers nationwide paid the Wentzville, Mo., company thousands for overpriced service contracts that were sold through illegal and deceptive means. Its founders, Missouri brothers Darain and Cory Atkinson, are accused of plundering $101 million in corporate assets for their own personal gain.
“U.S. Fidelis suckered consumers through a multitude of lies while its owners, the Atkinsons, drained money out of the company to maintain a lavish lifestyle,” Attorney General Rob McKenna said. “This settlement helps ensure they won’t harm Washington consumers again.”
Attorneys general sued the defunct company and the Atkinsons shortly after March 2010. Assistant Attorney General Mary Lobdell, with the Washington Attorney General’s Consumer Protection Division, led the investigation.
The states accused the defendants of a variety of illegal actions stemming from deceptive junk mail, illegal telemarketing robocalls and misleading TV ads. They alleged the company’s solicitations misled consumers to believe their auto warranties had expired or would soon expire and confused customers into thinking that they were being contacted by a manufacturer or other entity affiliated with their original vehicle warranty. Many consumers who were led to believe they were purchasing a warranty providing “bumper to bumper” coverage of all major repairs later found the contracts full of exemptions.
“Only a vehicle manufacturer can provide an extended warranty,” Lobdell said. “U.S. Fidelis hooked consumers by using a multitude of lies, including describing expensive service contracts as ‘extended warranties’ provided on behalf of specific manufacturers.”
The states also accused the defendants of violating Do-Not-Call laws and using technology to bypass caller ID and mask the origin of sales calls, refusing to allow consumers an opportunity to review the complete written service contracts, denying valid refund requests, improperly obtaining consumers’ personal information and violating state licensing and registration laws.
Washington filed its version of the settlement today in Thurston County Superior Court. The Atkinsons denied any wrongdoing but agreed to surrender at least 90 percent of their assets pursuant to a related bankruptcy agreement, including assets from 20 related corporations. The settlement also requires the Atkinsons to comply with a lengthy list of restrictions on future business and marketing practices. Specifically, they are prohibited from:
Telemarketing in any of the participating states.
Marketing or selling motor vehicle service contracts (unless employed at a dealership, and then only in connection with the sale of a specific vehicle).
Misleading consumers about the source of an offer.
Misrepresenting their relationship with a consumer.
Representing that an offer is “exclusive” or “final” unless it can be substantiated in writing.
Disproportionately targeting consumers 65 or older.
Selling or providing personal information obtained from a consumer to unaffiliated companies for marketing purposes without the consumer’s consent.
Additionally, the settlement requires the defendants to provide sufficient disclosures in solicitations, honor a consumer’s request to be removed from a mailing list and comply with laws and regulations related to fair business practices, credit offers, privacy rights and licensing and registration requirements.
The Atkinsons each owe Washington more than $4.6 million in civil penalties, as well as about $300,000 for costs related to the investigation and litigation. With the surrender of their assets, any recovery will come from the U.S. Fidelis bankruptcy. The states continue to negotiate with the bankruptcy estate to benefit creditors and consumers.
The following states participated in the settlement: Arkansas, Idaho, Iowa, Kansas, North Carolina, Ohio, Oregon, Pennsylvania, Texas, Washington and Wisconsin.
U.S. Fidelis was the nation's No. 1 extended-warranty dealer for autos and a primary NASCAR sponsor before its collapse. State attorneys general began investigating U.S. Fidelis in 2008. The company declared bankruptcy on March 1, 2010. The states – whose earlier attempt to negotiate a settlement had stalled – filed their lawsuit soon after the bankruptcy announcement.
In October 2010, a federal bankruptcy judge approved a settlement that requires the Atkinsons to give $10.5 million to U.S. Fidelis and surrender millions in additional assets, including Darain’s 40,000-square-foot mansion, a 50-foot yacht and 10 other boats, 11 autos and 14 motorcycles. The bankruptcy settlement was conditioned on the states’ agreement to settle claims with the Atkinsons.
In addition to the lawsuits filed by the state attorneys general, Verizon sued U.S. Fidelis for making 3 million illegal calls to cell phone customers over seven months in 2008, and BMW and Subaru brought a lawsuit for trademark infringement. U.S. Fidelis’ contracted telemarketer, Voice Touch, was sued by the Federal Trade Commission for robocalls. In March, Voice Touch agreed to pay more than $655,000 in consumer restitution and is banned from telemarketing.
Federal investigators continue probing whether U.S. Fidelis committed any criminal wrongdoing.
Any way you slice it, this was dirty pool where NASCAR fans were concerned. The dollars given to US Fidelis after the personal appeal of Rusty and Steven Wallace will probably never be returned. Wallace has been mum on the subject.
As we originally pointed out last year, Wallace barely escaped a much greater penalty for his choice to associate with the Atkinsons and US Fidelis. In late 2009, the Federal Trade Commission extended the rules covering the liability of celebrity endorsers where products were concerned.
The new rule is "both advertisers and endorsers may be liable for false or unsubstantiated claims made in an endorsement." In other words, the celebrity faces selling a product or endorsing a service are just as liable if the product or the service turns out to be fraudulent or a scam.
In trying to guard consumers against exactly what happened with US Fidelis, the FTC said the following. "The determination of whether a speaker’s statement is an endorsement depends solely on whether consumers believe that it represents the endorser’s own view."
In very plain words, Wallace and his son personally endorsed US Fidelis in ads that were specifically targeted at the very brand loyal NASCAR fans. It is impossible to estimate the amount of money US Fidelis made directly from the Wallace TV commercials and the NASCAR fan base.
Ultimately, the Chapter 11 filing of US Fidelis in March of 2010 showed that the company still owed Rusty Wallace Racing slightly more than 500 thousand dollars. So, maybe what goes around comes around after all. Any way you look at it, that's dirty money.
Links to references on this topic are listed below. Happy to have your comments. This is a family-friendly website, please keep that in mind when posting. Thanks for taking the time to stop by The Daly Planet.
Scenedaily.com - US Fidelis Owes Rusty Wallace
Daly Planet - Trouble Brewing For Rusty Wallace And US Fidelis Sponsor
Bnet.com - FTC Considers Extending Ad Jurisdiction
Bnet.com - New FTC Rules For Bloggers And Celebrities
STLToday.com - US Fidelis Founder Goes From Prison To The Pinnacle
STLToday.com - Former Owners Of US Fidelis Settle With 11 States